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Origin Energy sizes up Beetaloo gas prize

Origin Energy could be sitting on a multi-billion dollar gas resource in the Northern Territory, several times the size of the North West Shelf and with the potential to keep the energy-short eastern states market well supplied for years.

All it needs now is the green light to get gas flowing.

Speaking at the site of Origin's successful Amungee well, drilled last year, chief geologist David Close likened the resource to an "elephant" and said it was hard to argue that the unconventional well is not the country's most successful.

Origin chief geologist David Close is excited about the prospects for Beetaloo. Peter Eve

"It's undoubtedly met and exceeded expectations, and there has been a lot of disappointing results from shale," Dr Close told reporters.

Chief executive Frank Calabria said that in the early stages of work, the resource "looks very exciting", particularly given the east coast is crying out for more gas.

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"I'll leave it to others to speculate as to the overall scale of that potential: Suffice to say it's caught people's attention across the industry and investors about what it could be," Mr Calabria said. "It is potentially material and potentially valuable."

While activity at the Beetaloo Basin project about 600 kilometres south-east of Darwin has been scaled back due to the NT's fracking moratorium, Origin is keenly eyeing a potential resumption of work. But that depends on the outcome of the government's ongoing scientific inquiry, which was driven by intense community concerns about risks to land and water resources.

Premier shale play

The Beetaloo Basin has rapidly emerged as the country's premier shale play, despite the early stage of work, with results matching some of the best in the US. The NT scientific panel estimated the Northern Territory holds more than a third of Australia's total shale gas resource, with about 70 per cent of the NT's gas in the Beetaloo region. The panel said it could start commercial production in five to 10 years.

Origin's preliminary estimate of 6.6 trillion cubic feet of gas as a "contingent resource" was based on a 57-day production test at the fracked Amungee horizontal well, squeezed in just before the moratorium. That volume – enough to supply Australia's domestic gas needs for more than five years – assumes just one layer of a single shale, called Velkerri, over an area of just 2000 square kilometres.

But Origin's three permits cover more than 17,000km², while another shallower layer, called Kyalla, could also be productive and hold valuable condensate as well as gas. Citigroup has estimated the permits may yield over 100 Tcf of recoverable gas.

"There is certainly a large volume of gas in the Velkerri formation. It's really material; you cannot put a number on it," Dr Close said at the well site, on pastoral land about 50km east of Daly Waters.

"It's like trying to identify an elephant by its toenail."

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The results from the well have gone some way to putting to bed doubts that the 1.4 billion-year-old rocks in the Velkerri formation, lying about 2.4km underground, would be too old to yield productive flows of gas, and have attracted attention worldwide. But Dr Close cautioned it was still too early to declare the gas commercial.

Citigroup has calculated that the economics of Beetaloo gas would be "challenged" by high pipeline costs, while Wood Mackenzie's Saul Kavonic said that even if the moratorium were lifted tomorrow, large commercial volumes of NT gas are "probably at best a second half of next decade story".

Third parties show interest

"We're open to considering the right joint venture structure," Dr Close said.

Origin and its remaining partner, Ireland's Falcon Oil & Gas, still have another five wells to drill under their original five-year, nine-well commitment, with the remaining work costing up to $120 million. If the moratorium is relaxed in 2018, drilling could resume in 2019, Dr Close said.

Despite its reputation as remote, the Beetaloo Basin lies close to the Stuart Highway and just north of Tennant Creek, where an $800 million pipeline is being built to take NT gas to the east coast. Beetaloo gas could also be piped up to Darwin for LNG.

"The market will take care of that, where the demand is, whether that's east or north," Dr Close said.

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